Laundromat Industry Experts Review the Past 12 Months – And Share Thoughts on What May Lie Ahead
It’s impossible to recap the past year in the laundromat business without acknowledging the clear-cut success of the Clean Show, which attracted more than 11,000 attendees to the Morial Convention Center in New Orleans this past June. It’s also difficult to miss the fact that new technology was again center stage at this event – and that it continues to drive this industry forward.
“From a national point of view, I think 2019 will go down in history as the year of the technology,” noted California multi-store operator Brian Brunckhorst. “There was no better place to observe this than at the Clean Show in New Orleans. While walking the trade show floor, I kept saying to myself, ‘Now, there’s an app for that, too.’ Whether you want an app for payment processing, managing wash-dry-fold or remotely controlling your washers and dryers, it’s now available.”
Brunckhorst added that Clean 2019 also was the first time he’d seen fully integrated payment processing systems built right into the washers and dryers. The continued growth of alternative payment options was definitely another highlight of the past year, with touch control machines now available with built-in, application-based payment systems.
“The Clean Show is always a highlight, and this year was no exception,” added Kevin Hietpas, director of sales for Dexter Laundry. “Our industry continues to innovate, and this year laundry owners were able to look at not only new equipment models, but more importantly, integrated and expanded laundry management platforms and new integrated mobile payment systems.”
Hannes Saeubert, vice president of North American Commercial at Alliance Laundry Systems, saw a rise in premium store development in 2019 – again, with a nod toward technology.
“This is driven by more tech-savvy investors than in years past,” Saeubert explained. “These individuals and companies are well-capitalized and place a premium on higher feature controls that help increase the bottom line and create a better customer experience, along with systems that streamline management.
“Big players have noticed our industry and are ready to rapidly invest.
Along with that, this caliber of investor is used to relying on advanced analytics to run their business, which has driven rapid and broad adoption of such technology. Good mom-and-pop operators can successfully compete, but it likely will require reinvesting more often than in years past to keep their laundries up to new higher standards.”
“I am surprised and thrilled to see how much focus there is on user experience in our industry,” said Dennis Diaz, owner and founder of Spynr, a marketing firm based in New York City. “Personalization is more important than ever. Walking around the Clean Show, I saw product enhancements that made using equipment technology much better. It’s refreshing.”
For Ted Ristaino of Yankee Equipment Systems, headquartered in Barrington, N.H., business continued to be strong in 2019, both in the retool and store development areas.
“The year began with a soft opening but heated up quickly in the second quarter,” Ristaino said. “We had anticipated a mild slowdown or a mild recession; however, neither materialized. It was nice to have a pleasant surprise for a change.
“Store development was driven mainly by multi-store owners expanding their portfolios, as well as single-store owners becoming multi-store operators,” he noted. “On the rehab side, the economics of replacing old – more than 15 years old – equipment with new equipment continues to drive business. The current environment of low interest rates funding a retool that results in lower operating costs, while allowing the savvy owner to increase vend prices, makes the retool decision a low-risk endeavor.”
Hietpas agreed that the continuation of a favorable interest rate environment was one of the keys to 2019.
“Interest rates remaining near historic lows, coupled with strong customer traffic in many markets, put store owners in a position to feel better about upgrading or expanding their current stores, as well as being more interested in pursuing new locations,” he explained.
And, with the advent of new technology, many experienced owners expanded into already competitive markets – offering faster turnaround, larger machines and more payment options.
Todd Fener of Laundry Owners Warehouse, based in Ft. Lauderdale, Fla., pointed to tax reform as one of the perhaps more stealthy highlights for laundry owners this past year.
“The biggest open secret out there is investing in the 1031 Opportunity Zone, which is not to be confused with the regular 1031 deduction,” Fener clarified. “The 2018 tax reform laws created a path to avoid capital gains on the sale of certain investment properties. Laundry owners with the land are already doing it in a big way. The deductions are huge.”
In addition, more and more laundry owners began to provide childhood literacy programs and other community outreach initiatives in order to give back to the communities they serve, as well as to help attract and retain customers.
“I’m excited to see goodwill becoming more visible in the industry,” Diaz said. “As a result of efforts from organizations like the LaundryCares Foundation, more store owners are bringing civic resources into their businesses. It’s a perfect complement to marketing plans. Doing good and giving back helps build secure connections with communities.”
Industry Challenges
Despite all of the positive news coming out of the vended laundry industry in 2019, the business was not without its challenges. For instance, construction costs were a concern for many laundry investors, particularly newcomers to the industry.
“Once an equipment package is determined, sticker shock is encountered when the buildout costs are presented,” Ristaino related. “Along with costs, the timeline for a buildout can get stretched out by code enforcement officers whose schedule may not coincide with the owners. It still surprises me how many licensed trades people are baffled by the installation requirements of a vended laundry.”
In addition, as the economy has improved, retail rental rates have increased, thus creating new challenges to find locations where the projected numbers make sense, according to Russ Arbuckle, president of Wholesale Commercial Laundry Equipment SE, based in Southside, Ala. What’s more, the cost of doing business continues to rise in most laundromat markets across the country.
“Increasing costs for sewer hookups continue to be an issue in many areas, and this hurdle seems to be spreading into markets where previously this had not been an issue,” Arbuckle said.
The challenge continues to be getting towns and municipalities to understand the relatively low impact new laundromats have on their infrastructure, such water and sewer usage, according to Hietpas.
“Too many times, projects for new laundromats are held up or even cancelled due to exorbitant impact fees as much as $10,000 per washer,” he explained. “Along these same lines, communities in California and New York were handcuffed with obtaining permits for natural gas use, as local governments and energy companies utilized businesses seeking natural gas permits as pawns in a chess match between state government agencies and energy companies.”
“In my market, we had quite a few large challenges over the last year,” explained Chicago multi-store operator Paul Hansen. “We have seen yet another large increase in the cost of water and sewer, due to the final phase of the city’s implementation of a water/sewer tax, which now stands at 30 percent. We also have had to deal with the minimum wage for employees increasing to $13 per hour, in addition to mandatory paid sick days. All in all, it has been quite a challenge to maintain margins via price increases and reduction of labor hours.”
Certainly, labor continues to be an obstacle in most sectors.
“With the job market at or near record low unemployment, one of the biggest challenges has been finding people who want to work as laundry attendants,” Brunckhorst explained. “In addition, the increasing minimum wage is making managing a payroll budget extremely difficult. This has culminated in a widening gap in vend pricing between attended and unattended laundromats.”
For laundry owners looking to grow their businesses, the steady U.S. economy was a double-edge sword, Hietpas concurred. On the positive side, it meant that business for existing stores was generally good, but on the negative side, the current low unemployment environment made it more difficult to find and retain good help.
“And, in areas where the economy was especially strong, rental costs for good locations became more expensive, as did the cost for renovation and construction,” he added.
“Utility costs don’t tend to go down,” said Chad Lange, sales director of commercial laundry at Whirlpool Corp. “That’s why we spend a lot of time engineering and developing as efficient of equipment as we can to help offset as much of that as possible, without compromising the quality of the wash. Of course, operational costs in general are always a challenge as well.”
Lastly, according to Diaz, the laundromat industry is definitely lagging with regard to today’s significant marketing trends.
“We can’t count on legacy marketing if we want to grow in our markets,” he reasoned. “To build relationships with customers, new and old, business owners need to connect with them in places they are searching and having conversations.”
Trending in 2019
With regard to industry trends, Houston-based multi-store owner Robert Maes characterized 2019 as “the year of increased competition,” at least in his part of the country.
“A significant number of new stores opened in our region, and a number of new investors appear to be looking to get into the business,” explained Maes, who jumped on the bandwagon and grew his business this year by building a new 5,000-square-foot laundromat of his own. “The inventory of stores available for sale is limited, so new construction is preferred.
“Additionally, we are seeing a number of new laundries being built as part of the new construction of large gas station/convenience stores,” he added. “In some cases, these ‘add-on’ convenience store laundries are as large as 3,000 square feet. What’s more, free dry is beginning to emerge in our region for the first time.
“In its November issue, PlanetLaundry published a very helpful article on how to react to new competition. All I will add is that, if you have not seen new competition in your market, it most likely is coming – and store owners should take steps now to be prepared. In our case, we are leveraging our brand in an attempt to further differentiate our stores from competition.”
Industry consolidation was another trend that was hard to miss.
“Consolidation of the distribution side of the industry really took off in 2019,” Arbuckle noted. “Manufacturers buying distributors, as well as outside companies aggressively moving forward with acquisitions, are clearly changing the face of the distribution side of the laundry industry.”
“Although consolidation of distribution companies may seem like an ‘inside baseball’ topic, its impact will be felt by every laundry owner,” Fener stated. “We are seeing things like never before in the industry. The seismic shift can be seen all over. Manufacturers are trying all sorts of new things – direct-to-customer sales, franchising, built-in payment systems, building stores for customers, and buying distributors. And they are more responsive than ever to customers, especially online.”
Also, based on the past year, the adoption of “more-ways-to-pay” is clearly here to stay, according to Hietpas.
“Whether it’s the addition of an integrated mobile payment capability or the addition of an ancillary mobile payment or card payment capability, the ability to allow customers to pay in more ways is clearly not going away,” he said. “Although there may always be a place for a traditional coins-only laundry, the trend is certainly moving in the direction of more ways to pay.”
Fener pointed to app-based payment systems as a growing trend.
“At Clean 2017, friends told me they were getting 2 percent use,” he said. “I checked back with them at this year’s show, and they’re at 9 percent to 12 percent usage. Until very recently, most manufacturers stayed out of the payment system business. Now, almost all of the manufacturers have a proprietary, built-in, app-based system.”
“From an industry perspective, we saw a big push on connectivity and how that’s going to enable laundry owners to run their businesses in a more detailed way, as well as impacting the end-users of the equipment, the laundromat customer,” said Matt Conn, senior manager of product and marketing for commercial laundry at Whirlpool Corp. “New technology gives owners the ability to really understand pricing and to make pricing shifts more dynamically. They’ve got the ability to program machines more quickly and in more frequent intervals. And these new tools enable operators to drive analytics around their businesses.”
A couple of trends that Hansen has noticed in the last 12 months has been the continued shift in the laundry industry from mom-and-pop types of operations to much more professional ones, as well as the expansion of early childhood literacy programs being offered by vended laundries.
“The most exciting trend I’ve seen has been the CLA’s charitable foundation, LaundryCares, continuing its efforts to bring literacy into laundromats,” Hansen stated. “I’ve already added one of LaundryCares’ Family Read, Play & Learn centers to a location, and the second one is on the way. Hopefully, by this coming spring, all five of my locations will have these centers installed.”
From Ristaino’s vantage point, three clear trends took hold in 2019:
- Credit card payment systems have moved to the forefront this year, which has led to an increase in multi-store ownership.
- Big operators got bigger.
- Wash-dry-fold systems, whether in-store or managed by vendors, offering marketing and routing software became more prevalent as owners sought higher returns on their investments, with some also venturing into the commercial laundry space.
The volume of store owners interested in cutting-edge technology and systems grew rapidly in 2019, according to Saeubert.
“It is not only a way for owners to differentiate their businesses from competitors, but also a means to run their operations with greater visibility,” he said. “With mobile payment, owners spend more time improving their business instead of collecting coins. This trend will continue as technology improves. Being at the forefront of this technology will continue to drive the laundromat space forward and make it an even more attractive investment. Data and access to business information are key drivers in all businesses today.”
“I think search engines have really shaken up a lot of people this year,” Diaz noted. “It is, by far, one of our most requested services. Whether it is paid or organic search, people really took hold of the importance it has on their businesses. It is almost a death sentence for your business not to be found online.”
Along those same lines, Brunckhorst pointed out that he saw laundry owners becoming more aware of their social media presence in 2019 than ever before.
“In a world of instant information, more and more, owners are managing their social media presence and reviews, along with doing more advertising online,” he said.
What Does the Future Hold?
According to our industry panel, here is a peek at the future of the laundry industry:
Russ Arbuckle – I believe continued growth of larger, full-service stores will continue to dominate the industry. There are several reasons for this, including a growing base of consumers who are willing to spend money on their laundry needs, rather than spending time doing their laundry. The continued rise of companies offering pickup-and-delivery services will only enhance this growth.
Another growing trend we’re noticing is large shopping center owners and management companies now actively seeking laundromat development. I believe this is a result of the continued efforts of the majority of the industry to change the image of laundromats – from what were once perceived to be small, dark, dirty, unattended businesses to multimillion-dollar investments that can actually strengthen the prosperity of these shopping centers and their management companies.”
Brian Brunckhorst – We’ve experienced one of the longest expansion periods – 11 years – in the last 40 years without correction. I’m not an economist, nor do I have a crystal ball, but we are overdue. I wouldn’t be surprised if we see some kind of economic downturn in 2020. That could be a good thing for laundry owners. After all, laundromats often perform better in down economies, because people move out of houses and into apartments. Also, increased vacancies in commercial properties lead to lower rents. A downturn also would help keep interest rates low and could spur financing incentives by manufacturers.
Matt Conn – We’re calling for a rather flat growth projection next year. From a macroeconomic perspective, we’re anticipating a leveling off. In addition, material prices have continued to rise, and we continue to keep an eye on the tariff situation, which is very volatile. Taking it to the commercial laundry space, connectivity is big, and we’re pressing our distributors to get stronger at managing connected solutions. Also, the industry is becoming more focused on the consumer experience and what that looks like. Owners are seeing this as a great way to differentiate themselves from the competition. That will become more and more important going forward.
Dennis Diaz – I am hoping to see some level of artificial intelligence play out in 2020. The big names in the tech world – like Amazon, Google, Facebook and others – are proving that AI is what’s next. Personalization is getting more intimate with technology. Laundromat businesses need to start thinking of ways to integrate themselves into this trend.
Todd Fener – I see another good year for the vended laundry business. Deductions are high, interest rates are low, and even second-tier owners know the value of rehabbing their existing locations. Owners are making bigger investments in themselves, opening their pocketbooks and making more money.
Paul Hansen – I think we will continue to see smaller stores that have not been run well or updated continue to close, while at the same time, larger, more professionally run operations will continue to flourish and expand. Also, pickup and delivery continues to be a great new revenue source for many owners, who are willing to put the time and effort into this segment of the business. In addition, we will continue to see more laundromats using alternative payment systems – whether card-based, app-based or hybrid systems.
Kevin Hietpas – Our industry continues to move forward, and while outsiders may see our industry as very low-tech, it most certainly is not. With utilities representing a major cost of doing business, our industry has long been at the forefront of adopting energy-saving technologies. Today, as the Internet of Things becomes more common in all facets of life, the vended laundry industry is at the forefront of adopting new technologies to allow owners to more closely manage their operations, as well as deliver improved customer service and an improved customer experience.
Chad Lange – On a macro level, we see a stable environment for the most part. And we all believe that the vended laundry industry will remain stable, whether we’re experiencing in a strong economy or a recession. We see relatively stable growth for the industry, with the focus on operational efficiencies and connectivity. Everyone wants to work smarter, not harder. That’s where technology is taking things. Connectivity is really the foundation of what we see happening in the future.
Ted Ristaino – We think 2020 will be another strong year for the vended laundry owner. The Federal Reserve is committed keeping interest rates at levels that support economic growth, while managing inflation. The unemployment rate is so low that even a mild uptick in that number shouldn’t move the needle in terms of volume at the store level. On the distribution side, there may be fewer new stores built, but the stores will be bigger and, more than likely, built by experienced operators.
Hannes Saeubert – The laundromat business will continue the trend of larger investments into a more elevated retail-space buildout and a more profitable mix of premium-featured equipment with technology solutions aimed at better user and owner experiences. Put simply, the status quo of years past seems to be in the process of being challenged by more savvy investors with deeper pockets.
I foresee many veteran laundromat owners reinvesting in their business in 2020 to keep pace with the competition focused on an elevated customer experience. You will continue to see this as a best practice, and it will be a mainstay in the industry within five years. Along with the technology best practices, you will see many more stores investing in more profitable avenues of the laundromat business, such as wash-dry-fold and pickup/delivery services.
